Question

A project has an expected risky cash flow of $300, in year t= 3. The risk-free rate is 5percent, the market risk premium is 8percent and the project's beta is 1.25. Calculate the certainty equivalent cash flow for year t=3. |

Answer #1

A project has a forecasted cash flow of $126 in year 1 and $137
in year 2. The interest rate is 5%, the estimated risk premium on
the market is 11.5%, and the project has a beta of 0.66. If you use
a constant risk-adjusted discount rate, answer the following:
a. What is the PV of the project? (Do not
round intermediate calculations. Round your answer to 2 decimal
places.)
b. What is the certainty-equivalent cash flow
in year 1...

A project has a forecasted cash flow of $128 in year 1 and $139
in year 2. The interest rate is 7%, the estimated risk premium on
the market is 12%, and the project has a beta of .68. If you use a
constant risk-adjusted discount rate, what is:
a. The PV of the project? (Do not round
intermediate calculations. Round your answer to 2 decimal
places.)
Present value
$
b. The certainty-equivalent cash flow in year 1
and year...

Assume that the risk-free rate is 5%, the risk-adjusted discount
rate is 10%, the expected cash flow for t = 1 is 495, and
the expected cash flow for t = 2 is 508.2
a)Assume that the cash flow risk increases geometrically through
time. Compute the present value of the cash flow stream using the
certainty equivalent method.
b) Assume that the cash flow risk remains constant through time.
Compute the present value of the cash flow stream using the...

Finance Question 14. MZG is considering a project that pays CFs
of $3million a year for three years. These cash flows have been
adjusted for risks. Given an expected market return of 13%, market
risk premium of 9%, and a beta of 1.2, what is the NPV of the
project? A. $6.87 million B. $8.32 million C. $6.35 million D. None
of the above Answer: B. use risk-free of 4% as discount rate. CFs
are certainty equivalent. Using CAPM formula...

You are valuing a company that generated free cash flow of $10
million last year, which is expected to
grow at a stable 3.0% rate in perpetuity thereafter. The company
has no debt and $8 million in cash. The market risk premium is
8.4%, the risk-free rate is 2% and the firm’s beta is 1.4. There
are 50 million shares outstanding. How much is each share worth
according to your valuation analysis?

You are valuing a company that generated free cash flow of $10
million last year, which is expected to grow at a stable 3.0% rate
in perpetuity thereafter. The company has no debt and $8 million in
cash. The market risk premium is 8.4%, the risk-free rate is 2% and
the firm’s beta is 1.4. There are 50 million shares outstanding.
How much is each share worth according to your valuation
analysis?

QUESTION THREE
Hezborn has the choice to accept a guaranteed $10 million cash
flow or an option with the following;
A 30% chance of receiving $7.5 million
A 50% chance of receiving $15.5 million
A 20% chance of receiving $4 million
Calculate expected cash
flow.
[6 marks]
Assume the risk-adjusted rate of
return used to discount this option in 12% and the risk-free rate
is 3%. This, the risk premium is (12% - 3%) or 9%
(show the workings)
Using...

Gio's Restaurants is considering a project with the following
expected cash? flows:
Year
Project Cash Flow? (millions)
0
?$(210?)
1
100
2
72
3
100
4
90
If the? project's
appropriate discount rate is
11percent, what is
the? project's discounted payback? period?
The? project's discounted payback period is ____
years? Round to 2 decimal places

Consider a project with free cash flow in one year of
$140,738
or
$162,796,
with either outcome being equally likely. The initial investment
required for the project is
$80,000,
and the project's cost of capital is
18%.
The risk-free interest rate is
11%.
(Assume no taxes or distress costs.)
a. What is the NPV of this project?
b. Suppose that to raise the funds for the initial investment,
the project is sold to investors as an all-equity firm. The equity...

with a risk-free rate of 2.4% and a market risk-premium of 8.3%,
a stock's expected rate of return is 11.3%. the following year, the
market risk premium decreases by 1% but the stock's beta and the
risk free rate remain the same. what will be the expected rate of
return on the stock for that year

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